There’s three basic points where a product gains it’s value, and thus the price; raw materials value, seller’s value and customer’s value. By far the most important of these is the customer’s value.
Let’s use a knife as an example (mainly because I’m working on one at the moment.) A knife has basically two basic raw materials that are wood and steel. The wood can be practically anything that’s sturdy enough to carry the blade, but the steel has to have proper carbon content for the blade to be sharp enough to be worked with. At the moment the value of raw materials I’m working with is 0€ for me, but the actual price is around 30-60€. When we add the seller’s value to the mix, you have to think about the amount of time it goes into crafting the knife. One hour of might be equalent of 3€ or so, which barely is minimum wage. If you work ten hours on a knife, the price would be then 60-90€. This is elementary to everybody and is easily deduced by common sense.
Where everything gets mixed even more is the customer’s value. A customer will not pay 90€ for a knife if he doesn’t see the value in hand crafted tool. You can buy a knife around 15€ from your local hardware store and be done with it. Most likely you’ll use it more as well, as the monetary value is so low and the knife is easily replaceable. Sure, you’ll be replacing the nice oak handle into a red plastic and the blade will be your stock blade made by casting molten steel. We all know I’d rather that something made by two hands and see the depth that hides in the blade.
Marketing is something that can easily affect the customer’s value and marketing targets that point always. Look at any commercial and you’ll see the traditional trick to turn your favour over. Why would you want to buy Coca Cola in a glass bottle rather than in plastic one? There’s practically no real difference in the taste and plastic bottles these days are nigh resistant to the corrosive effect of the cola, while glass bottles still are ground down bit by bit by the drink. It’s the image of Coca Cola in a glass bottle that is sold rather than the drink itself. If the customer values the drink and sees the image offered by the company, the company can sell the 0.35l drink at the same price as 0.50l drink. Personally I collect the bottles for sentimental reasons, so you could say that my values of glass bottled Coke is indeed affected by the marketing campaign.
However, what happens when the offered values do not meet the customer’s values? In most cases the given image and values are changed from the company even if slightly, as it’s always a better idea to spend a bit more money to gain more sells on the long run. Pepsi basically changed their whole value system at one point when aggressively attacking Coca Cola, dropping their cheap-cola reputation and building a whole new image.
Still, there’s one company that refuses to change its values even if the customer base has stated that their values do not meet their’s; Nintendo. All in all, Nintendo’s customer base rejected the 3DS almost completely. The values Nintendo sees in the device do not meet those of their customers’. Actually, they’ve been blaming the customers’ of “not getting the device,” and blaming the customers for low sales is like shooting the cow which is feeding your family. Nintendo actually made a loss of nearly billion dollars this years just because they abandoned the Wii and made the 3DS. Wii could keep going strong for three more years, but Nintendo strongly believes that every console has a five year life cycle and then a new console has to be introduced. I disagree with this as does anyone who has ever owned a GameBoy.
How do I rise the value a customer sees in my knife? Basically it begins with the showcase of raw materials. Oak is always seen as a classy and valued wood over a lot of others, the image of oak is valued. The steel that is used should be described as something that’s been tempered with care and from various different steels so that one blade could be found. The appereacance has to be described as unique to anything else, and the use has to be just right. A hunting knife has to have a form that follows use, but a decorative dagger may have use that follows the form. Quite honestly, decorative daggers looks awful. I’d rather invest 60€ into a proper knife than spend 25€ into a piece of iron and plastic. Finally, it has to stated clearly that it has been handmade, designed by yours truly and crafted by these very two hands that are handing it over. Perhaps then the customer can see the value when all previous has been combined.
You can easily sell a 4€ cross necklace for 20€. It’s jewellery, and people like to invest into jewellery, no matter the price. In that sense, the earrings I’ve made for few people should around 40€ or more, but I could crank up the value because people are willing to pay…. unless their values do not meet mine.